Why Calls to Break Up Tech Companies Attack American Ideals
June 5, 2019
There is a war being waged right now against American ideals. Or, at least a war against the seeming uniquely American idea that you can turn a dream into success—that you can create something in your garage that billions of people want to buy. In America, we rightly hold up those who turn nothing into something, picking themselves up from poverty and obscurity to the pinnacles of success.
Steve Jobs and Steve Wozniak created the first Apple computer in their garage. Jeff Bezos launched Amazon as a site selling books, driving packages to the post office himself. Mark Zuckerberg created Facebook in a college dorm. Larry Page and Sergey Brin launched Google from their Stanford dorm rooms.
Politicians and activists are leading the charge against these successes, calling for the regulation of large technology companies. The calls take several forms: comprehensive privacy legislation, forced political “neutrality”, and antitrust to name a few.
Some calls for regulation, while an improper solution, are understandable. There are regular stories about how Facebook misrepresented its privacy policies or violated user trust and about how companies failed to secure consumer databases properly.
A primary form of regulation gaining traction these days is antitrust. While antitrust is the appropriate name, most people are familiar with the arguments to “break up” big tech companies. For example, Elizabeth Warren wants to “break up” Facebook, Amazon, and Google. One of Facebook’s cofounders, Chris Hughes, claims it is “time to break up Facebook.” Neither of the arguments are persuasive or correct.
To understand why the arguments are misguided and incorrect, it is necessary to define the scope of antitrust actions including the standards used by the federal government, look at history to inform us of how markets react to dominant players, and understand some of the inherent weaknesses of the pro-antitrust arguments.
Monopoly Defined and the Consumer Welfare Standard
Broadly stated, and perhaps overly simplified, antitrust policy as a regulatory tool is designed to break up monopolies and trusts that harm consumers. Monopolies, in turn, are a way to describe companies that have control of a market. Merriam Webster defines monopoly as “1. Exclusive ownership through legal privilege, command of supply, or concerted action; 2. Exclusive possession or control; [or] 3. A commodity controlled by one party.”
The legal definition, according to Black’s Law Dictionary, is “1. Control or advantage obtained by one supplier or producer over the commercial market within a given region. 2. The market condition existing when only one economic entity produces a particular product or provides a particular service.”
Monopolies are not inherently wrong. They are wrong when the company uses its monopoly position to harm consumers. When judging monopolies, the standard the federal government and courts have applied for over forty years is called the “consumer welfare standard.” Stated succinctly, the standard provides “that overall consumer welfare and economic efficiency should be the main criterion regulators look to when evaluating… alleged anticompetitive behavior.”
Let’s say that only one company in the country can produce widgets. The company is a monopoly. The monopoly is only bad and potentially subject to antitrust action if it uses its position to engage in some form of predatory pricing, for example, or uses its dominance to prevent other potential competitors from entering the market. But if the company prices widgets in such a way that consumers are not harmed, even though it is a monopoly, the company has not violated the consumer welfare standard in such a way to trigger antitrust actions. Such harm to consumers is difficult to imagine in the context of today’s large tech companies since they compete amongst themselves and people voluntarily sign up for the services or products offered.
How the Market Responds to Dominant Players
Furthermore, success can be fleeting. The “titan” of one generation will likely not be the titan of the next generation. In the early days of the internet, experts argued that Microsoft was a monopoly because it included Internet Explorer as part of the operating system package. There was some concern that the company prevented people from downloading other browsers, such as Netscape.
Blackberry was among the world’s first “smartphones.” Experts worried about the size and reach of AOL. The dominant company in the burgeoning social media space was Myspace.
What about those companies today? Certainly, Microsoft is still a key player, but Internet Explorer is gone. Blackberry, AOL, and Myspace are all but gone. In all cases, innovators brought better products or services to the market, leading to the decline of the former titans.
So, are today’s tech titans candidates for antitrust action, or is their seemingly dominant position just a temporary state? That is to say, when has the government properly used antitrust actions to break up consumer harming monopolies? While not perfect examples, the government broke up AT&T, railroad trusts, and oil trusts to name a few. Each monopoly or trust held a unique position in the market: they were the only players. They used their position to harm consumers by raising prices and preventing competition.
Weaknesses of the Antitrust Arguments
It would take far too long to list all the weaknesses in the arguments proffered by pro-antitrust advocates, so I will only address a couple. Some point to the political influence big tech founders could wield. Putting aside the fact that antitrust is incapable of negating political influence, breaking up big technology companies will do little to curb the power of the founders over the companies. If, for example, the government tries to break up Facebook into three component parts of Facebook, Instagram, and WhatsApp, Mark Zuckerberg would retain controlling interests in all three companies.
Social media platforms and other tech companies are not monopolies. They may be dominant platforms, with the dominance coming from market efficiencies, but they are not monopolies. Facebook and Twitter compete. Snapchat and Instagram are competitors. WhatsApp, Signal, Telegram, and others are all messaging apps offering encryption. Google faces competition from several search engines such as Yahoo, Duck-Duck-Go, and so on.
The ability to create wealth from nothing is more than a mental concept, it is an American ideal. Antitrust regulation, or breaking up big companies, applied for no reason other than the size of a company, regardless of actual monopoly status or harm to consumers, punishes success and the pursuit of the American ideal. The calls for antitrust regulation are misguided and ignore the lessons of history.
